RAOUL PAL: Chamath, great to get you on Real
Vision. You are one of the people I have really, really wanted to sit down and talk to because you
cover all sorts of spectrums and there is just a lot to dig into. Before we start, your story is
amazing. I am the son of an Indian immigrant to the UK, and you have a story as well.
just part of you and part of your character, and I would love you to share some of that coming
from Sri Lanka. CHAMATH PALIHAPITIYA: Sure. Well, first of all, thanks for including me. I have
been a fan of yours for a while, so it is great to be on. The short version of the long story
is I was born in Sri Lanka. At the age of six, my parents were posted to the Sri Lankan
High Commission in Canada, and so we moved to Ottawa, myself and my sister and my parents.
In the middle of that tour of duty there, he was supposed to be there for four years,
he was a mid-level diplomatic person there. A civil war really accelerated and at the time,
there were multiple factions fighting each other. There was the Tamil minority fighting for a
homeland in Sri Lanka. Then there was also an extremist Sinhalese Buddhist minority as well
also fighting for a much more firm response. Long story short, my dad who
is a pretty devout Buddhist, wrote some articles. He got in a lot of trouble.
His life was threatened, and we filed for refugee status and the Canadian government gave it to us.
Then it is a typical hardscrabble immigrant story. You go off the government dole.
up on welfare. My mom was a housekeeper, then a nurse's aide, my dad bounced around
jobs for a while. I went to school in Canada, Electrical Engineering, and then for a few
years, I spent as a derivatives trader, and then moved to the United States. RAOUL
PAL: I am sorry. I was a derivative salesman. Who were you working for? CHAMATH PALIHAPITIYA:
Bank of Montreal, BMO Nesbitt Burns. I created cross currency swaps, USCanada, US-Japan,
US-Mexico, but really, I started out as a coder helping to design math models, and then was able
to be a part of running a book and managing risk. Anyways, long story short, I really put a pin in
that because in 2000, I moved to the United States to go back to more of an engineering skill
set, and I worked at a bunch of startups. RAOUL PAL: What made you do that, because finance
at the time was the thing to do, it was the brain drain was sucking into finance.
Still, at that
point, what made you swim against the tide? Go to California and start from there. CHAMATH
PALIHAPITIYA: I have been the byproduct of a lot of incredibly fortuitous decisions. Some of
them were not made by me. In that case, it was not. I had a boss, his name was Mark Kaplan, Da
Capo, the boss's boss, and he gave me zero bonus. I was a high performer who I think had gotten
a little over his skis, I thought too much of myself, and I was pretty arrogant. I had become
just not as good as I was when I was hungrier and more humble. He sent a wakeup call, and that
is the strongest wakeup call you can get because if you are expecting several hundred thousand
dollar bonus as 21-year-old kid, and I had all these plans about paying off my debts and paying
off my parent's debts and buying them house. I had been able to do some of those things already
through this job, I had really lofty expectations. It was a huge coming down to earth for me.
NICHOLAS CORREA: Sorry for interrupting your video, but I have a very
important message to share. At Real Vision, we pride ourselves on providing
the very best in-depth, expert analysis available to help you understand the complex world of
finance, business, and the global economy. So if you like what you see on the Real Vision
YouTube channel, that's just the tip of the iceberg.
You should come to realvision.com and
see how we're not leaving any stone unturned. From publishing more in-depth videos, live
discussions, written reports, and our latest feature, The Exchange, where you get a chance
to engage with experts, fellow subscribers, and learn from everyone's experience, which can't
be wrapped in a video. It's an experience which you live and learn from. So if you go to the
link in the description or go to realvision.com, it costs you just $1 to get a month's access
to this incredible content.
I don't think it's something you can afford to be without.
CHAMATH PALIHAPITIYA: to do some of those things already through
this job, I had really lofty expectations. It was a huge coming down to earth for me.
It was more of anger and spite that I said, fuck this, I am quitting. It turned out to
be a great decision. The embarrassment was really incredible for me, because it was
my first really big professional failure, but I overcame it pretty quickly.
I have always had a tendency to learn from things and you learn that the cost of
that failure is not that high. I was still able to feed myself, I was able to help my family. Nothing
changed. All of a sudden, just a consequence of trying and failing and then learning and being
better and figuring out where you are not good, and figuring out your blind spots, that stayed
with me. That is what caused me to leave. It did not come from the best place. It came from
a peak of insecurity and I learned a lot from it.
RAOUL PAL: A lot of people get paralyzed by
fear of failure. Actually, failure, I always find, creates change. In change, there is always an
opportunity. CHAMATH PALIHAPITIYA: Well, the thing is that most cultures, this is why Silicon Valley
is so special, the real thing that if they can export to the rest of the world, I think sometimes
it gets caricatured here as a bunch of dilettante, mostly guys, mostly thinking about stupid first
world problems. There is some of that, but when I came here, and I think that the enduring
thing that this place has, which is a feature is a bug everywhere else, which is that everybody
else points to and laughs, and mocks failure. Whereas here, it is a real badge of honor. It
is because people have found that there is a secret that is hiding in plain sight in Silicon
Valley, which is that when you fail, you learn. Instead, if you say you are learning things, then
the more failures you have, it just means the more knowledge you are acquiring, which means
the closer you are to figuring it out. The people that are the most respected here
are the ones that have had some spectacular failures by conventional measure.
what they are, are incredible learners, and then that has caused them to have some huge
outcomes. That is an incredible insight that it is hard to internalize. Most places just
do not embrace that. One thing about Canada that I will say is, I am the byproduct of
an enormously important social safety net. Whether it was welfare, or whether it was
federally subsidized health care, or federal and provincial subsidized education, I had the benefit
of every single social safety net possible. A lot of my politics and a lot of my beliefs are
governed because of that. Despite all of that, Canada was not super accommodating for somebody
like me, because I was willing to fail. I was willing to be an outlier.
It is very
difficult to be quite honest, unless you are around other people who will tell you that failure
is okay, and I did not find that until I moved here in 2000, 20 years ago. Because in every other
place, they look at you and say, you should be toeing the line and being part of the established
aristocracy if you can be a part of it. It is an incredibly important thing that Silicon
Valley got right, then when I moved here, I felt very much at home.
RAOUL PAL: Yes,
because the UK where I grew up is terrible for it as well. CHAMATH PALIHAPITIYA: The
UK is even worse because the entire peerage infrastructure and system and the classism that
is so incredibly entrenched retards progress, ultimately. You are always fighting a very, very
small number and ever shrinking number of haves versus an ever larger pool of have nots, and
really, what they are fighting over is power. Because it is not that they are fighting over
resources and money, but they are fighting over judgment and they are fighting over all
these very elusive psychological things. The most important thing that the "have
nots" can do is just decide that the power that they haves have does not matter anymore.
deconstruction is actually an incredibly powerful element of societal evolution and those that
get it right, thrive, and those that do not, just go by the wayside. Ray Dalio has a scene,
he had a really good book about four years ago. I cannot say that I read it, except the last
few chapters he summarized in a YouTube video, which I really liked. Essentially, it was like
he talks about these economies and the great periods of time as countries defined in these four
phases, which are poor countries acting poor, then a poor country that becomes rich, but still acts
poor, then a rich country acting rich, then a rich country that has become poor and has not realized
it and still acting rich, and then a rich country becoming poor again. It is this entire cycle.
When you look at who is in the ascendancy of power geopolitically today, it is all these folks
who have completely deconstructed a social hierarchy from 100 and 200 years ago that they
have found to just be really not that helpful. RAOUL PAL: That is an interesting point,
because something– I think we have all seen it and you get this as your background,
you go to Silicon Valley, you get involved in what becomes social media and the revolution.
That changed everything for everybody.
It created a society of which there was no sovereign
borders, a society around which you could operate only within people that you wanted to
operate within. I have always talked about this, you could be a chihuahua lover, and you only
have to hang out with chihuahua lovers online and you can hate the rottweiler lover, you
can basically create any tribe you want, and that is different. CHAMATH PALIHAPITIYA:
It also did something really, very visceral, and psychological and it also reallocated power
and influence. When you see how the establishment reacts to social media today, I would say that
the US election is a great window into this. The 2016 election was about castigating
Facebook. 2020 has really been the election of throwing Twitter under the bus, but really what
it is, is an emerging realization by both the left and the right, that social media reallocates
power and influence in a way that disrupts the allocation of power and influence.
it is much more likely, and Donald Trump I think, is the canary in the coal mine, it is much more
likely that future leaders of politics are really people that can coalesce movements online. In
that, you are much more likely for The Rock, or Kim Kardashian, or Charli D'Amelio to be
the next great politician, then you are some person who is steeped in policy and
who really understands what to do. RAOUL PAL: I heard you recently talking, I
think it was on Kara Swisher's podcast about that potential move towards centrism, but it feels
that it is the opposite. It is a bifurcation and it is a multifragmentation, it is difficult to get
any consensus in a world where everybody shouts. CHAMATH PALIHAPITIYA: That is true. I think
that basically what is happening is part, it is 50% what you said, and 50% what I just
said in that podcast. To unpack it, I think what is happening is that you are absolutely
right that that social media, and just like the way that we organize ourselves now is becoming
highly fragmented, because you have a tendency to seek confirmation bias.
puts you into is your own echo chamber, whatever that is. That could be believers
of climate change versus non-believers, vaxxers versus anti-vaxxers, queueing
on people versus non-queuing on people. Across any dimension, no matter how normalized
or no matter how extreme political views are, you can find your own echo chamber, and you will
stay there gladly, because it is confirmatory. In a place like the United States, where
there are still only two political parties, and the allocation of power is a
binary decision between two people, I think what it means is that you then
optimize for the lowest common denominator, and the political strategy in the future to win–
I am not saying it is right, but the strategy to win is one of centrism, because the centrist
platform now embraces 50% of the left's agenda and 50% of the right's agenda, because that is
the only way mathematically to get a plurality, just the way that the US is governed,
the way the electoral college works, the way that these 50 states are really completely
discontinuous bodies of electoral and political will.
RAOUL PAL: Basically building a Venn diagram
and looking for the [?]. CHAMATH PALIHAPITIYA: That is exactly it. I think politics in America
for the foreseeable future is a cold calculation of the intersection of Venn diagrams. RAOUL PAL:
One of the things that interests me that I am sure you have got a view on is obviously online trust
and digital identity. Because somewhere within this, there is fake news and deepfakes, and it
is becoming, it is going to become an issue. We do not really know how to deal with it yet. How do
we solve for this? Is this a blockchain solution, digital identity? How do you see this evolving?
Because I think something big is going to come out of this, because out of crisis comes opportunity.
CHAMATH PALIHAPITIYA: You are incredibly right here. My view on this is that we are– and I have
said this before, and it triggers people, but it is true.
After the attacks in
the World Trade Centers on 9/11, we had the creation in the United States, or
something called the Patriot Act. What that essentially allowed was a level of government
oversight that we still have, and if anything, has gotten even more dramatic than it was even
20 years ago. What it is, is that basically, the creation over the last 20 years of a modern
surveillance state. It is not just an American phenomenon. It exists all over Western Europe. It
exists in Russia. It exists in China. It exists in every single country.
We made it okay and it was
under the guise of our of our physical safety. After the pandemic, I think we are going to
see the emergence of a new form of the Patriot Act as well, except the key differentiation
here is that it will be highly decentralized, and I think it will be individually controlled
and administered. There, there will be a handful of companies that pay a critical role. One example
is Apple. Apple's stance on privacy puts them at the forefront, and in a really unique position to
help. How would this play out? I think that what you will have is more trust but more anonymity
through a service that essentially allows you in a public-private key model to exchange critical
Information at key points of transaction. If you wanted to walk into your offices at
Google over the next four or five years, I suspect you will take off your phone, that
you will authenticate with your face or your retina or your fingerprint or a combination
of those things plus a code of some kind. It will generate some QR code in real time, and
then you will scan it into a scanner.
What that code will basically tell people is not that
it was Raoul or Chamath, but it will tell them that you are disease free, that you have been
vaccinated against the measles, that you have been vaccinated against the coronavirus COVID-19,
but maybe also COVID-22 when that occurs. That some other airborne pathogen that all of a sudden
emerged, you have been vaccinated against as well, that you have been recently swapped and PCR-tested
for some other set of things. Then you will walk into the building, and you will be able to be
economically productive with your other coworkers. The reason we are going to go there is because
every other person has an incentive to actually ask that the people around them sign up for
the same restrictions. It is one of these unique opportunities, where I think what we are
seeing is actually people sponsored surveillance, where there has been no other thing you
could have created in the world that would have basically said, I trust you, but I do not
I need a third party intermediary to basically validate that you are who you say
you are, and you are what you say you are. I think that that writ large is where we are going
to go. You are going to basically walk around with a digital passport. The entries in
that passport are not necessarily going to be visas that allow you to go to one country
to another, but it is going to be statements that cannot be repudiated, about things about
you. Those things are going to be important for you to conduct your normal life going forward.
RAOUL PAL: There is a couple of logical parts of this that I am interested in as well.
have been thinking through this, thinking, okay, we all have a digital identity
and whether it is anonymous or not, one of the features of the current social media
system and the online system is supernormal profits attracted two or a few players. Now,
if you are in control of your own data– now, Tim Berners Lee is working on stuff like
this, there is ways that you can use this digital identity to get rewarded, I am thinking, here
is a way of solving for universal basic income, because people who have more time on their
hands can spend time online and you can get paid by the advertising cut, essentially. CHAMATH
PALIHAPITIYA: You are saying something really important, which is that once you actually make–
I do not know how to say this in a non-pejorative way, and there probably is a better way, but
conformity a feature, confirmation a feature, then you can design incentives around that
confirmation. You are exactly right. I think companies and governments will be able to say, I
am going to pay you or incentivize you for these specific forms of behavior and confirmation.
PAL: That sounds like a redistribution of wealth, because the people who got super rich
were the people who basically used us for free. CHAMATH PALIHAPITIYA: Exactly right. That
is exactly right. RAOUL PAL: That solves a lot of problems, because you do not even need to tax
people, because it is hard to tax these companies. If you are paying it directly to me for using
my attention, fine.
That is a fair [?]. CHAMATH PALIHAPITIYA: I have said this a couple of times,
but it is something I have not spent enough time maybe discussing. I really believe that when you
look at efficient market theory, that is a model that worked to define extremely capital intensive
industries. Because the point of differentiation was a universal resource that everybody had,
which is money or had access to effectively and so markets would compete away profits.
Efficient markets gave us a warm, fuzzy blanket to roll ourselves around and that capitalism
in the way that we had designed it would work. That is not true anymore, because now,
there are these critical assets that nobody ever thought would get created. You cannot
even define them in law, what is a network effect? How would you define that for the purposes of
law? That a company can create, that basically creates an involuntary form of entrenchment
and effectively quasi-regulatory capture? That is a crazy dynamic, and so the only way that
you can compete those companies away is actually through incentives and taxation.
It is not through
government intervention. RAOUL PAL: For me, it is the rise of behavioral economics. Behavioral
economics is basically destroying all the previous forms of understanding business models, because
once you applied big data to people's attention, you have crazy incentive systems, and
that changes everything. Governments– and we will come on to this in a bit– it is all
coming out of Central Bank Digital Currencies, I think the rise of behavioral economics is got
led by Facebook, Google, and everybody else, as we know and Daniel Kahneman and everybody else
was involved in it. It is coming to government as well in a much more meaningful way. Just before
we get onto some of this stuff, the other thing– I do not know if you have been following the whole
IndiaStack story. CHAMATH PALIHAPITIYA: I have. In fact, I was actually going to tweet something out
today. Today is- – what day is it today? November the 16th. Because I have a payments business
in India that I have been working on for almost 10 years now and it has absolutely exploded 10
years in, just a 10-year overnight success story, and on the back of the pandemic, but
I have been following UPI and Aadhaar, for a long time.
I have been a big believer
in that Stack. RAOUL PAL: Me too, and Silicon Valley missed the whole thing. I am like, there
is 1.3 billion people on a super-fast UPI payment system. IndiaStack, as they are building it
out, you will have your medical records or your KYC. The only thing people do not like
about it is it is not distributed. It is centralized. CHAMATH PALIHAPITIYA:
Exactly. I think that that is the key element of it, which I think will limit it is
used, but I think it will be used so pervasively in finance that that is good enough, because
that is a hundred billion dollar, maybe it is a trillion dollar market. RAOUL PAL: Just the
frustrations of KYC in this current world, it is simply ridiculous and that can be solved so
quickly once you have digital identities. The problem is everybody thinks there is
just going to be a disruption of your freedom and there is that big shit fight going on.
PALIHAPITIYA: I do not think that– it is not that everybody, there is always a vocal minority who
basically needs to have a view to sound smart. Most of the time, they are pretty fucking stupid.
To be honest with you. The loudest people are never the smartest people. They are just the ones
that want to be heard because they want attention for some other set of reasons that come from their
own psychology and insecurity. Anybody who spends the time to learn about anything always comes
off as pretty moderate and boring because they tend to just come to a balanced perspective.
more you learn, the more confusing things are, so that the more almost conservative in the
presentation of the facts one is. It is when you are just starting to learn about something and you
think that you can be heard that you start to just spout off and frankly, to the people that
know more, you just sound like a dumbass. RAOUL PAL: Here is something I want to learn
about, and you know all about, there are two things. One is that there
was a dichotomy going on between Main Street and Wall Street. The equity
market is at alltime highs, and clearly, Main Street is totally fucked. People do
not get this.
It is destroyed, because we have now got a secular change of business model
going on as well. What do you think about that, and how is this going to
evolve? CHAMATH PALIHAPITIYA: We have had, since Ronald Reagan really, one form
of economic policy, and one way to view the interaction of fiscal and monetary policy, which
is effectively trickledown economics. We have always done it under Democrats and Republicans, we
have always thought the right way to think about this is effectively some forms of low taxation
for corporations and the idea that put the money into the hands of people. What those people will
do is redistribute that. I tend to think that that is turned out to not be true anymore because
what we are learning is that it is just way too complicated. The financial incentives for these
companies are too perverse and so the distribution of dollars to the edges is not happening the
way that we thought it could have in a much simpler economy in 1980.
I think we have to go
to the extreme other end, which is to say, okay, maybe the right way to think about this is to
actually put money into the hands of individuals, let them spend. By spending, they are doing two
things. They are going to stimulate the economy, but they are also driving more capital markets
efficiency, because they are going to be voting with their dollars about which products that they
want to win. 300 million people's decisions in America, 330 million people's decisions in America
is probably a lot more valid than the 500 CEOs of Fortune 500 companies. That signal is probably
much more high fidelity and more reliable. This was an opportunity in the pandemic to
actually experiment more with putting money into the hands of individuals, and then observing
which businesses that they pick on the presumption that that is actually a better implementation
of efficient markets theory, and that instead of going top-down, this bottom-up is actually the
right way to go. The thing to remember is that we have spent the last 30 to 40 years completely
perverting the incentives in the capital markets. We were an environment that rewarded diversity,
that rewarded specialization, that rewarded R&D, that rewarded savings, and that rewarded
Then over the last 20 or 30 years, we have completely flipped that script. Instead,
what we have told CEOs, it is about ruthless efficiency at the sake of resiliency. It is about
consolidation. It is about current profits. It is about consolidating dividends and consolidating
share purchase agreements or share purchase buybacks. It is about current redistribution to a
small money class. Then a thing like the pandemic, basically exposes that the emperor has no clothes,
and that most of these boards were making these decisions to placate a CEO, who was making these
decisions to reinforce the compensation model that those board directors gave them. Then
when you want to look at the incentives, the board directors get paid $500,000 a year so
it is just a bunch of ex-bureaucrats that get can collect a million dollars by being on four
boards and acting like a dipshit. It is a CEO, who basically does not know their head from their
ass, did not know how to invest, did not know how to do R&D. The investable universe in the meantime
shrank from 8000 companies in America to 4000. We literally have spent zero on R&S.
We have been
completely passed over by countries like China. You just throw your hands in the air and say, wow,
we need a wholesale reset of what is happening. The simplest way to do it is to let people
decide. I do not think that I need to punish a crappy airline company and their crappy board
and their crappy CEO, but I do think that if you gave consumers money, that consumers would
also realize that that product was crappy, and just use a different competitor, and then that
would solve it.
RAOUL PAL: How do you give people the money? Because what you are talking about
here is– CHAMATH PALIHAPITIYA: Cut them a check, just cut them a check. RAOUL PAL: Just cut them
a check. CHAMATH PALIHAPITIYA: By the way, we did that. In the United States, we gave people money,
it is just idiotically, we stopped. For every dollar we gave, we gave $10 or $12, to all kinds
of, again, 500 CEOs of which I would say 100 are really smart and 400 are eh, if I am being really
kind about them. What do we do there? Then it turned out that $660 billion went into an entire
program, PPE, that turned out to be riddled with fraud. What were we thinking? RAOUL PAL: Well,
this is what I was coming into, is once you put the banking sector in the middle of this, a lot
of stuff does not work. The money mechanism, the central bank prints money, it goes to the banks,
it does not go, so there is no velocity of money. When you have got a structured program, like the
PPP, what happens is it goes to the wrong people. It feels like that process of the banks having
a monopolistic control over the distribution of money is probably going out the window.
PALIHAPITIYA: It is probably going out the window. I think the banking industry will not have some
fatalistic death blow. It is death by 1000 cuts. We are now seeing the emergence of an entire
class of FinTech companies that are slowly eroding the value proposition of entrenched financial
institutions. It will take another 10 or 20 years for us to see it happen in enough scale where you
can see these– the concept of too big to fail to me is just asinine. It is insane. It is actually
should be the opposite. It is like, no bank should ever be too big to fail that it matters. We should
have many, many small banks of which there can be umpteen failures, and the system just moves
on, and it can self-heal. What does it mean to actually have six banks where the FDIC limit
on deposits is still a million dollars? Well, by definition, you cannot be an enormously big
bank with a whole bunch of assets of which any individual account is less than a million. That
is just the reality of the law of large numbers. There are enormous amounts of pools of capital
that are effectively uninsured.
Does not make any sense. I just think that financial institutions,
and then the zero rate environment has completely exposed these folks. I just think the
incentives and financial organizations are being rewritten, and 20 to 30 years from
now, I do not think you will have these too big to fail banks, they will have decayed to the
wayside and instead, you will have hundreds and thousands of small vertical specialists in every
specific niche. RAOUL PAL: Yes, somebody asked me yesterday on Twitter, what is the biggest TAM
available? It is money. CHAMATH PALIHAPITIYA: I saw your answer to that to SuperMugatu,
to Dan McMurtrie. My answer was energy. I understand where you are coming from when you
say money because I do think the business of money is enormous. RAOUL PAL: Just even energy is priced
in money. It is the denominator of everything. CHAMATH PALIHAPITIYA: Exactly.
I was going to
say is mine was a more tactical answer that, to me is more obvious to disrupt. The disruption
of energy will have the most important impact in reallocating and reassessing
geopolitical power. It actually solves most of the big pernicious corrosive issues
that we have geopolitically. RAOUL PAL: Yes, talk to me about that. Climate change and
technology and solutions, because it is huge and it has been something, it is difficult to talk
about, or it has been difficult to talk about, because you get wildly attacked for even
talking about it.
It is clearly one of the biggest opportunities we have ever seen. CHAMATH
PALIHAPITIYA: It really is. This is, again, speaks to whenever people get really emotional
about it, I just think they are a fucking moron. The left should just shut up and realize that
climate change is simply not a politicization of having breathable air, but it is just
breathable air. It is a nonpolitical issue, and the right should shut the fuck up and realize that
climate change is the simplest path to normalizing the geopolitical shitshow we have been in for 20
years. Ever since 9/11, we have been literally and figuratively but literally, on a death
barge, to destabilize the Middle East in this wag the dog scenario, where making it
the centralized place where all the chaos in the world happens is our simplest path to safety
and security domestically in the United States. That has not turned out to be that way, because
it has created all kinds of other whack-a-mole problems that we never anticipated. Now, knowing
what they did, maybe that was the best solution. I do not know. I was not obviously in the
bowels of that decision making.
In 2020, what I can tell you is if you want to fix our
problems with Russia, China and the Middle East, the simplest thing is climate change. Why is that?
Well, if you actually have the cost of wind and PV batteries, et cetera, cheaper than the
cost of fossil fuels, the simple economics, forget the value added of clean air and a better
Earth and less deforestation, less destruction, less, less, less, all of that is good. At a simple
level, if the cost per gigawatt hour basically gets cheap enough, and it is cheaper than fossil
fuels, you stop ripping the fossil fuels out of the ground. Now, where are the fossil fuels? They
are in the Middle East, and they are in Russia. Now, what do those two bodies of country, what
are they forced to do? They are forced to monetize all of that today. Because if they see
a cost curve that is going down, down, down, where at some point by 2030, the price of
fossil fuels is basically effectively negative. Their decision is, oh, gosh, we need to monetize
all of this oil right now.
Now, that has this other order effect, which is in the price
of oil, drops even further. We have this crazy contango event in May of 2020 where you had
negative $30, or $50 per barrel oil. The reality is that the Middle East will monetize their oil,
Russia will monetize their oil, they will pull all of those future profits into today's profits, and
then they will try to reallocate and diversify. Why is that an important thing? Well, it is
an important thing, because all of a sudden, there is not as much money left
to have all kinds of excursions, to have other kinds of things that
could have mattered when you had a 50- year supply of $30 oil. Extremism all
of a sudden becomes very unprofitable to fund. State-sponsored actions become very unprofitable
You have to become much more centrist, and you have to be focused on current stability
of the population, because you know the money is running out. You have to be much more aggressive
in educating your population, in making sure that they are well, and they are healthy, that they
are fed, and that they can then create an economic substrate that helps you transition away from oil.
All of that is a massive thing that just consumes time, energy, and focus. Nobody has time to be
hacking and blowing things up and being extremist when you are focused on economic survival,
up and down the political spectrum. Climate change has this incredible feature
that it is a Trojan horse for normalization. Now, let me tell you something else. For the
economic salvation of the Middle East, it is an incredible platform. Why? Because much like oil,
the Middle East has this incredible distribution of sunlight that is just not true in other
Now, how does that play out? Well, when the price of PV and the price of
solar becomes super, super, super cheap and over time, we figure out there is
one massive thing in climate change– there is a set of big order issues, but one
big order issue is how do you run a furnace at extremely high temperatures? Now you may think,
what the hell does that have to do with anything? It happens to do with everything. How do you
refine oil? How do you make plastics? How do you manufacture steel? How do you do anything is
with a high temp furnace. If you figure out how to capture the sunlight, which the Middle East
is in an overwhelmingly better position to do, quite honestly, because they just get more
sunlight than the rest of us. It is Armenia that has the most sunlight of any country in the
world. Theoretically, the richest country from a resource perspective is Armenia. Now, to go back
to the Middle East, you have a ton of sunlight, there will be somebody somewhere that invents
an arc furnace that can essentially be run with photovoltaics or wind or something.
All of a
sudden, you know what the Middle East will be able to do? They will disrupt China. Why? Every single
low cost manufacturing capability will move there. Now, China already has a demographic
death bomb that they are dealing with, which is that in the next hundred years, they are
going to have 500 million people in that country. Because that one child policy has created such an
overhang of older people versus younger people, they have this massive inverted demographic
pyramid, it is the exact opposite of India, that you are on a death march to having half
as many people.
If you have a combination of half as many people all getting older, and
a manufacturing substrate that is moving to a place that is lower cost, because you have
photovoltaics and rich, cheap, abundant energy, all of a sudden, the Middle East becomes a
renaissance of GDP. We know what GDP does. It normalizes everything. People want cars, they want
clothes, they want to go to McDonald's, they want to have Starbucks. RAOUL PAL: We are seeing it in
Saudi now. They get this. CHAMATH PALIHAPITIYA: They get it. Saudi Arabia, that is it. They are at
the leading edge of it. I think what MBS is doing is actually really incredible, because he realizes
he has to monetize the oil and transition the economy. Once somebody comes to him and knocks on
his door and says, I have a set of climate change solutions that can really make you a manufacturing
hotbed, of course, he says yes.
By the way, the other thing is the Middle East was manufactured
after World War II to divvy up oil so that the first world countries had access to a critical
resource. The Middle East has 10s of countries really embedded within. There are probably 50
countries in there is 30 plus dialects, that could be 30 plus countries. The reality is you are
going to have a fragmentation in the Middle East, and you will have a renaissance in manufacturing
and GDP, that basically makes extremism just inefficient and not a good feature. It is
a failed startup, it cannot raise it Series B. Got out of the gate strong, raised a series
A but oops, no more product market fit. The market moved away from it. Think of Russia,
same situation, except that Russia cannot actually deployed a manufacturing substrate
necessarily as easily as the Middle East can.
If you look at climate change, you save the Earth,
you stop the extinction of all these species, you take carbon out of the atmosphere, and you
basically create a soft landing for geopolitical normalization, less war, less strife, less famine,
less extremism. Wow. RAOUL PAL: I got involved in Climate Change Twitter by mistake once and it
was a pretty tough fight. I actually just want to understand, okay, what was the behavioral
motivation by many people? A lot of it was basically, the same thing that you have talked
about is people are up to here right now. They are thinking, my gas price is going
to go up, or my tax is going to go up. Actually, technology is deflationary,
not inflationary. CHAMATH PALIHAPITIYA: One thing that people like you make
popular, people like me make popular is this idea of first principles thinking. I
think that you cannot build a following anymore, at least in substantive areas like economics and
Bitcoin or climate change, without at some level, being a first principles thinker. I think a lot of
these people that spout off on Twitter or Facebook or wherever are just afraid. I do not think they
really take the time to understand.
Like I said, they are more interested in burnishing their
social media credentials. The problem is, it is always fleeting because they will get exposed for
basically being rude. There is a lot to be said for being thoughtful and first principles in your
thinking. This is why again, the politicization of climate change is so stupid because it is
like if you centralize what is happening, nobody can disagree that any of these things
are bad. Guys like us will present it and extremism of all kinds now are being exposed for
being at the worst simplest case, inefficient. It is an inefficient way to accomplish
your goals because you sound like a fucking crying, whining baby. People are just
tired of that shit. Just shut up, stop whining, let us find a simple reasonable solution for an
important problem that we can all agree on, and let us move forward. RAOUL PAL: What is amazing
about finding solutions that involve massive change is this massive wealth to be made, and
If you have massively dropped the price of fuel, everyone is going to benefit.
Whoever comes up with some groundbreaking science and turns it into a product is going to become
hugely wealthy. Great, everybody is benefited. CHAMATH PALIHAPITIYA: People get too wrapped up
in wealth creation. Today, again, it has become a popular distraction. There is like a secret hiding
in plain sight yet again.
A good mental outlook, mental health is just about finding some
of these secrets hiding in plain sight and saying, okay, wow, okay, that is okay. Now,
what is an example of that related to wealth? Very few people become wealthy
by focusing on getting wealthy. Of all the rich people that I have met, they
have always been focused on solving a problem. The byproduct is that the bigger the problem
is that they solve it, and the more powerful the solution is that they deliver, the more
wealth that they create, but it is a complete, accidental byproduct of problem solving.
I tweeted this out a few weeks ago that solving climate change is what will
create the world's first trillionaire. The reason I said that is not because of the price
of photovoltaics, or the price per gigawatt hour of anything.
If you take this framework and
apply it to climate change, what you are doing is you are actually bringing peace. Well, what
is the economic value of peace? It is infinite. Even if you captured a few basis points of
infinity, it is probably a few billion dollars. That is why the world's first trillionaire will
be in climate change. That person I do not think is trying to be a trillionaire, that person
is going to be obsessed with carbon capture or obsessed with building an arc furnace. The
byproduct will be peace. The economic rewards will be in the trillions. I am okay with that. I
do not think it will be me, but I am not jealous of that person.
In fact, I am hopeful that he or
she is somewhere in the world right now learning about this problem and will go off and do
it. RAOUL PAL: What I find interesting is the trend towards applying an
engineer's mindset to global problems, because it used to be a political mindset but
the actual answer generally, is a pragmatic, cold, hard look at a problem and find a solution.
It has nothing to do with politics. That creates much better outcomes. Again, the classic example
of that is Bitcoin. When you want to reinvent the whole monetary system from scratch, that
comes out. CHAMATH PALIHAPITIYA: My whole view of Bitcoin was always that it is much better to
be pragmatic, and lay out a moderate case, which is that it is a hedge in a portfolio against the
traditionalist financial infrastructure.
So many people would get mad because they would anchor on
this extremist view that it had to be everything, it would have to be the solution and panacea to
everything. The problem with that view is that that is just not how you maximize demand. When
you think about products that really get to scale, there is a simplicity and what that simplicity
gives people a very simple decision to make, do I want to use this, or do I not want to use it?
If you want for example, Bitcoin, to get the mass market scale, the most powerful thing that you
can do is describe it in simple pragmatic terms that do not require zealous belief. It is just
an example to me that reinforces this idea that extremism never wins, and centrism is the value
maximizing function. RAOUL PAL: Because when I am looking at that whole world, I see all of the
other platforms, blockchains, tokens, and I am just thinking, okay, well, here is a big, diverse,
deep, rich universe.
I cannot just seeing it being about Bitcoin. Yes, Bitcoin is this great asset,
and it is a wonderful gift for us all. Thank you very much, we can all make some money, but this
whole space, that is super interesting to me. Because it is it is anti-fragile and it is [?]
and it offers a whole bunch of solutions to the problem of finance, which is a total shitshow.
CHAMATH PALIHAPITIYA: It is true.
It just requires a deescalated– I find that a lot of
people in Bitcoin, and it is so funny because many of them got there well after
I did. They are just so arrogant about it. I do not know, maybe I am just dumber, but
I just do not understand why people need to believe so much versus view it more pragmatically
and unemotionally, because I think they will find more success in the more unemotional treatment
of what it is. Another example is the entire defi movement. I got laughed at, because somebody
asked me, Laura Shin asked me what defi was, and I was like, I have no idea, but I own Bitcoin.
just telling the truth, which is I do not have the time to learn about all this stuff. At some point,
somebody will explain it to me, and I will know a little bit better. It is not to say that it is not
important, but it is to say that everything has a time and place, and if we are going to focus our
energies on making Bitcoin mass market and scale, we have to dial down this zealous rhetoric and
dial up pragmatist rhetoric. Pragmatist rhetoric is what will get your mother and your grandmother
to have Bitcoin in their wallet.
RAOUL PAL: That is right. I love Michael Saylor and his interview
has been amazing. He was on Real Vision. He speaks in a term that no corporate Treasurer understands.
They want to hear about hornet's nest, or anything else, they want to hear about diversification
of portfolio returns, and stuff like that. CHAMATH PALIHAPITIYA: To your point, look, I
have started an insurance company that is doing a bunch of very, very esoteric exotic insurance
policies. One of the interesting things that I have learned with my co-founder, my partner in
this, he is the CEO, I am just the chairman, is how many of these corporations view their
balance sheets, and how they are buying all kinds of esoteric insurance.
thing that pops to the top of my head is, wow, these guys should also own Bitcoin as
something like that. If they are going to own CAT bonds, and they are going to own business
interruption risk insurance and all kinds of hedges on PMI, my gosh, why do they not own some
Bitcoin? Well, it is because the presentation of that idea is done in such a way where they are
forced to make a leap too far. Because if you decompose what the treasurer or the CFO, how the
lens in which they are making decisions, it is just career risk.
It is that old adage, it is,
you are never going to get fired for buying IBM, and so you are never going to get fired for
just having the money sit in a corporate account earning zero at JPMorgan, then pounding your fist
on the table for Bitcoin. What we need is, again, more pragmatism around what it is. I have
always found the presentation of the idea as a deeply fundamentally uncorrelated hedge to the
existing financial infrastructure to be boring, not that salacious, but very pragmatic and
effective. RAOUL PAL: A lot of people want to get the institutions into the space, but
I keep explaining to people stop talking about libertarian philosophies and all of this
Everybody in the asset allocation space, the boring pension funds, use something called
BERRA. B-E-R-R-A. It is an asset allocation model. You need to go and talk to them how it
fits into the BERRA model, and they will go, oh, perfect. I will speak to my trustees. It is
as simple as that. CHAMATH PALIHAPITIYA: It is so boring. At the end of the day, it is like, this is
the boring blocking and tackling that is required, and it is fine. Look, I have different personas,
we all have different personas. There are parts of my persona that are very extreme in certain
views on certain topics in certain markets. I have also learned that there is a time and place
for that, but then there is a time in place for just pragmatic product building, blocking, and
tackling, and reputation and trust when you are trying to get something to scale.
that I have been at the forefront of is in SPACs. If I were zealous about SPACs, you would not
have seen the change in the capital markets that we have seen in two short years. RAOUL
PAL: We attracts you to SPACs? What is it, apart from the fact that it is
just easier to get something away, and there is some interesting economics? What is
so great about it? CHAMATH PALIHAPITIYA: SPAC is really important.
Well, I will give you why it
is important to me, and then I will give you why it is important to an entrepreneur. Selfishly,
for me, it allows me to basically be a conduit and act as a principal while I take companies public,
meaning I can use my balance sheet to basically empower companies to fulfill a mission that I
believe and underwrite in, and then I can be a big part of them as they grow in scale. The only
places to make money in the private technology markets are all the way up front at the Series A,
the Sequoias and the Benchmarks and the Andreesens of the world. I used to do that at Social
Capital. We did a good job, but it is very hard, and the returns are extremely long-dated. Or you
just wait for these companies to get baked into it at the back end where instead of putting in 10s
of millions, you put in hundreds of millions or billions if you are able to do it, and you own
the same amount as they end up owning anyways 10%, 12%, 15%, 20% and then you can basically
help them grow and scale.
That is selfishly why I was attracted to SPAC. Then now you get into
the Venn diagram part of why I liked it, and why it makes sense for an entrepreneur. It is because
you can talk about the future. The most important thing in underwriting returns, as you and I
know, in disruptive technologies is all about future returns. I do not care about 2019 and 2018.
Tell me about 2028 and 2029. What is your plan? The only way that you can talk about that when
you are bringing a company public is through an S4 process because it is a merger, because the
S1 process does not allow that.
The SEC rules are very strict around basically talking about future
prospects, future strategy, future cash flows, you cannot even produce a forecast. The S4
in a SPAC, it is the intersection between now my desires, and the entrepreneur's desires,
is about talking about the future in detail. Then for the entrepreneur, what they get is a
couple of things that are not as important to me, but important to them, which is speed, you take
an 18-month process and compress it to 100 days, and certainty of price. You exactly know what
your cost of capital is. You and your board can underwrite that and decide whether that is
too expensive or not. RAOUL PAL: Is it also an arbitrage? Because look, private markets and
public markets trade at different prices relative to each other, and for a period of time, the
pre-WeWork world, it was all trading at a premium, then it trades at a discount. Now, if the private
markets are trading at a discount, this is an easy way to arbitrage the value difference as
Because it is pretty quick, you can take advantage of it. CHAMATH PALIHAPITIYA: I think it
is more appropriate to describe what you say on a company by company level. I am not sure that it
is necessarily true that a company like WeWork, which is in a very different space than
for example, like an AI chip company, that there are these impacts where all of a
sudden, the person that is underwriting the chip company sees a discount where they otherwise would
have been paying a premium.
I am not sure that that is necessarily true, but I do think broadly
speaking, what you are saying is right, which is that right now, there is this weird opacity
between the private and the public markets. The most important thing is that mostly
for your viewers or your listeners as well, is that the returns that are available
in the private markets are still blocked. There is no access for average ordinary normal
folks to get access to that return stream. The SPAC does basically do that, because it allows
you to pull forward the IPO two or three years into the typical decision making process that
the company has.
Then you can own that in an exchange tradable or a market tradable security.
There is a democratizing effect here, which is very important and powerful. RAOUL PAL: What is
your view on tokenization? Is that going to take play a role in some of this eventually? Because
again, it is a different way of bringing companies into the hands of others earlier on. CHAMATH
PALIHAPITIYA: I think it will. I am going to say something crazy, which is that the tokenization
is actually not necessarily for the company itself and the unit allocation of ownership, but things
that the companies will want to create and then pass on to its unit holders, or stakeholders, if
For example, I could see that a company creating carbon credits and tokenizing those and
giving them to everybody that is a stakeholder in the business. RAOUL PAL: Different things
have different value that you cannot realize now, you can realize in the [?]. CHAMATH
PALIHAPITIYA: I can see a company that basically, this is going to sound crazy as well, but a
token that you can redeem for free vaccination. That you get all stakeholders, because it
is important for a company to have all their employees, but all their stakeholders as well, be
healthy. There are all kinds of like crazy things that you could think happens. RAOUL PAL: It goes
back to that behavioral incentives discussion we had before.
Once you got tokens, you can
create all sorts of viral incentives that did not exist. CHAMATH PALIHAPITIYA: Yes, exactly.
Exactly. RAOUL PAL: The last thing I want to come on to, something also you have been looking at,
and we are looking at at Real Vision is education. It just feels that everything has changed. We knew
it. We knew that video was changing everything in the way that software did, but it feels like
education is one of the big ones out there. What is your view on this? CHAMATH PALIHAPITIYA:
I think that this is the grand equalizing force. I do not think that we should have a world
where there are equal finishing lines, but I do think that we would be in a much
better place if we had equal starting lines. I had been a citizen of three countries. I am
a single East Buddhist male. Born in Sri Lanka, where I was part of the majority. Grew up in
Canada, where I was part of the minority. Now in America, I have essentially become part of the
moneyed establishment, for lack of a better word. I have lived a very crazy odd life where I have
all this cognitive dissonance from very different phases of my life.
The best thing that happened to
me was in those critical years of six through 20, I was in a place that valued an even starting
line. Growing up in Canada, it would not have been the same in the United States. My father died
five years ago, had diabetes for a very long time, struggled with alcoholism, struggled with
depression, very turbulent household, but the great savior was the fact that we had
state-sponsored healthcare and state-sponsored education. If I were in the United States,
and we were dealing with all those issues, my life would just not going anywhere.
What is my takeaway from that? I think places like Harvard and Stanford
are really corrosive. They are worthless. They have created a monoculture of check boxing
dipshits. They are money management institutions that basically dole out power and influence based
on acceptance and admittance that just entrenched the money classic. There is not a single person
that is the son of a rich kid that I have ever met who I think is as smart as the person who actually
made the money.
These kids are fucking morons. They are better off going to some crappy school
and finding something that they are passionate about, versus riding on daddy's coattails. We have
an entire political and economic and educational class that does not believe that that should be
what is happening, in fact that if you are rich, you have a right to keep your kid rich, and
you have a right to keep your kid powerful. That to me is really disgusting. The
faster we rip that down and rip it apart, the better off we will be, that the smartest
kids should be going to the best schools. Well, what is the best school? Well, the best school
now is actually just the best teachers. Well, where are the best teachers? The best teachers
are actually all around the world, and so really, what we need to have is a very different form of
what we value. RAOUL PAL: Well, one of the things I think about is that teachers, they are going
to be the new rock stars.
Teachers are going to get paid millions of dollars, millions.
[?] CHAMATH PALIHAPITIYA: I hope they do. I hope they do. Yes. RAOUL PAL: Because
we can change all of this now. Because basically, you applied the SaaS business model
to education. CHAMATH PALIHAPITIYA: I will give you an example. I send my children
to a school that is still closed. What is crazy to me is, okay, well, they are
sitting here, and they are learning virtually, but the teacher on the other
end could be any teacher. I think to myself, wow, well, I understand why
I sent them to the physical place I did when the school was open. That made sense. We are really
paying for social interaction. I do not think we were ever paying for education.
actually probably made that pretty obvious. If you can learn at home, or you can learn in the
school, what is the difference? The difference is you can hang out and you develop social norms
and hierarchies, and you learn to deal with all kinds of important psychological building
blocks that make a kid able to function as an adult in society. That is really what school
is there for. If you take that away, then you should be learning from the best history teacher,
the best science teacher, the best math teacher, that person should be running a massive online
course. We should have a common curriculum where nine to 10 Eastern, every 10th graders should be
learning from the best algebra teacher, and that person should be making $10 million a year.
should be getting paid more than an athlete. RAOUL PAL: I am not entirely sure. Now, that sounds a
bit controversial that the kids need to socialize together physically, because they already
socialize in Minecraft and online, digitally. I am not sure that the same things that we had
growing up in the playground and having your first fight or whatever it was or flirting with
the first girl is even going to apply necessarily, because kids now do not necessarily do that.
They get together for sports and stuff like that. CHAMATH PALIHAPITIYA: You are saying something
that is much more evolved in my thinking, but I agree with you.
I just have not spent enough time
to get psychologically comfortable with that yet. I am still anchored in this place where physical
spaces and physical interaction are really important, just because I do not think we have
evolved just from an evolutionary perspective enough, where we are capable of processing that in
a healthy way. I do think that it is true that the brain of an equivalent human 500 years
ago, and today is very different. What its needs are and what its capabilities are,
I do not think we have any empirical proof, but we have a lot of anecdotal proof that that is true.
Now, we will be able to study and I do think that from an evolutionary perspective, our great, great
grandchildren's brains will be very different. I do think you are probably right that we are going
to live in a world that has far less physical interaction and far more virtual interaction.
We will adapt and cope. We will thrive. It is just going to take a few
The problem is that our generation and our children and our
children's children will be the guinea pigs, will be the bridge to that new evolutionary
frame, and so I feel a little sad and nostalgic. RAOUL PAL: Yes, well, because we are the
last generation, as Gen Xers, we were the last generation who did not do that. CHAMATH
PALIHAPITIYA: Yes, we are the last generation to care about physical concerts, like my son came to
me and he saw Travis Scott into concert. I said, excuse me? He is like, yes, it was on Fortnite.
I was just like, what? He is like, yes, I am listening to it. We were going to do a viewing
party for a Marshmallow concert. I was like, well, what about saving for a concert ticket and
getting a ride for your dad to go to the O2 Center and see U2, or at Wembley? When you see Queenie
concert at Wembley, you are like, God, I wish I were old enough to have been there, like 100,000
My kids could not give a fuck. They are like, nah. RAOUL PAL: I like cling on to the fact
that I was at Live Aid and I was in concert at Wembley, and I saw U2 at the O2. These things are
anchor points to my life. CHAMATH PALIHAPITIYA: They mattered to me. Yes, they really mattered
to me, those were really important. I remember seeing U2 in Las Vegas, and I was just like,
it really mattered to me and just my kids do not think that. RAOUL PAL: There is a glory to a
crowd as well. CHAMATH PALIHAPITIYA: I have always thought so, I have always thought so. RAOUL PAL:
I was a bit weepy eyed the other day. I caught something from Glastonbury and Glastonbury
canceled this year, a big festival. I was a bit weepy eyed thinking, God, I love a crowd.
PALIHAPITIYA: Yes, totally, totally. RAOUL PAL: It has changed. Final question. What do you
think is the big thing people should focus on? For the next couple of years, look, there is a
lot of big things out there. What do you say, look, filter out, just this is the big
thing to focus on? CHAMATH PALIHAPITIYA: Balance. I know it sounds crazy, but extremism
is a failed experiment. Balance, moderation, centrism, pragmatism, it wins. It is the
boundary conditions for incredible innovation. All extremism does is it allows you to see how
inefficient it is. It is inefficient. RAOUL PAL: It is also inefficient to muster such strong
emotions that do not have actual returns. CHAMATH PALIHAPITIYA: So inefficient. RAOUL PAL:
Well, that is a brilliant answer.
Chamath, listen, thank you. That was really fantastic. I really
enjoyed it. CHAMATH PALIHAPITIYA: Real pleasure. Thanks for doing everything that you do. RAOUL
PAL: Thank you so much. One day, we better get to meet in person. CHAMATH PALIHAPITIYA: Fantastic.
NICK CORREA: I hope you enjoyed this special episode of the Interview, the premier business and
finance series in the world. However, this is just the tip of the iceberg. For more in-depth content
and expert analysis, visit the membership link in the description to unlock a week’s access for
only one dollar. This dollar can change your life..